巴黎银行-新兴市场熊市中的机会-新兴市场投资策略-20180704-23页_2mb

BNP PARIBAS MARKETS CALL: Emerging Markets – Bear Market Opportunities

Core Content

BNP Paribas Markets Call provides a weekly cross-asset market view, with a focus on Emerging Markets (EM) opportunities in a bear market environment. The analysis is presented by the BNP Paribas London Branch, with key contributors including Robert McAdie, Michael Sneyd, Pierre Mathieu, Benedicte Lowe, and Gabriel Gersztein.

Main Points

1. EM Currencies and Trade Dynamics

• Trade Wars and Currency Depreciation: Trade wars have led to currency wars, with the RMB weakening by 6.5% against the USD since April 2018, despite China's stance against using FX as a trade tool.
• Impact on Exports: Despite the 10% US trade tariff on $50bn of Chinese imports and potential further tariffs on $200bn, Chinese exports are still about 2% cheaper due to the RMB depreciation.
• USD Tightening Financial Conditions: A stronger USD and higher USD Libor rates have contracted USD liquidity, tightening EM financial conditions. However, commodity-based EM currencies have depreciated by nearly 10% since the start of 2018, supporting commodity trade channels with China.

2. US Economic Growth and EM Performance

• US Growth: US economic growth continues to outperform the rest of the world, supporting the USD in the short term.
• Real Rates: US real rates remain below 80bp, which is supportive for EM and other risky assets. The rise in the Broad Trade Weighted USD over the last year is only 1.7%, not a significant headwind.
• Flattening US Yield Curve: The flattening bias on the US 2s10s curve is expected to continue due to markets not yet adjusting to the Fed's projected rate hikes. Long-end yields may also be affected by the potential drop in US fiscal impulse by 2020.

3. EM Equities and Bonds

• Equity Performance: EM equities have underperformed in recent months, but forward P/E ratios are lower due to faster price declines. EM equity profitability and ERP have improved, making them attractive at current levels.
• Bond Sell-off: The unwind of the EM carry trade has led to a correlated sell-off in EM bonds. Going forward, we expect greater dispersion based on fundamentals.
• Risk Premia: High risk and term premia in EM make receiving rates in Brazil particularly attractive.

4. EM Financial Conditions

• Tightening: EM financial conditions have tightened due to higher CDS spreads and currency depreciation. This is exacerbated by the weak domestic currency making USD debt repayment more expensive and putting pressure on dollar lending.
• Long-term Outlook: While the USD is expected to strengthen in the short term, the long-term outlook for EM is positive with potential improvement in economic strength.

5. Currency Valuation and Fair Value

• Currency Valuation: Most EM currencies appear slightly cheap, with only a few (TRY, CZK, PLN, HUF, THB, COP) significantly undervalued.
• CLEERTM Model: BNP Paribas' CLEERTM model provides fair value projections for EM currencies, indicating that some are undervalued and likely to recover.
• Z-scores: Negative Z-scores indicate undervaluation, with some currencies showing significant undervaluation.

6. Investment Recommendations

• Trade of the Week: Investors who agree with the analysis may consider receiving rates in Brazil, where the official overnight rate is 6.50% and the central bank is not expected to hike this year.
• Interest Rate Instruments: Alternatives include receiving the DI Jan-21 at 9.14% (target 8.55%), FRA DI Jan22s23 at 12.43% (target 11.75%), and flattening between DI Jan20 and DI Jan21 at 89bp (target 50bp).

Key Contributors

• Robert McAdie: Global Markets Head of Strategy Research
• Michael Sneyd: Global Head of FX Strategy & Cross Asset Strategist
• Pierre Mathieu: Cross Asset Strategist
• Benedicte Lowe: Cross Asset Strategy Graduate
• Kris Gjini: Cross Asset Strategy Graduate
• Gabriel Gersztein: Head of GM Latin America Strategy & Commodity Quant Strategy

Summary Table of EM Countries

Key Charts and Insights

• Chart 1: Recent improvement in USD funding costs may provide some respite for EM FX after a poor start in 2018.
• Chart 2: EM financial conditions have tightened due to higher CDS spreads and currency depreciation.
• Chart 3: A stronger USD and weaker economic data have caused EM to underperform.
• Chart 4: The sell-off in EM equities has resulted in P/E corrections despite a softer earnings outlook.
• Chart 5: EM equities are especially sensitive to a stronger USD, while EM bonds are more sensitive to changes in US 10yr real rates.
• Chart 6: The rise in US real yield is helping drive EM credit spreads wider.
• Chart 7: EM equities have underperformed, but the equity risk premium has risen to attractive levels.
• Chart 8: EM surpluses have declined, with some countries like Argentina, India, and Turkey showing widening deficits.

Conclusion

Despite the challenges posed by a stronger USD and weaker economic data, EM markets present opportunities, particularly in equities and certain currencies. The report highlights the potential for recovery in currencies like TRY, CZK, PLN, HUF, THB, and COP, which are undervalued based on the CLEERTM model. Investors are advised to consider EM equities and currencies as potential long-term opportunities, especially in light of the current bear market environment and the attractiveness of real yields in countries like Brazil.